All Forum Posts by: Benjamin Riehle

Whenever we undergo a project, we always want multiple exit strategies. In real estate, that could be a variety of things. For example, if we’re looking at a potential property, we’ll run our numbers from the perspective of a flip. Then, we’ll run it as a rental. If both make sense, then we’ll pull the trigger. If we take on a flip project and can’t end up selling it at the price point that makes sense for our margins, then we’ll fall back on using it as a rental.

Here’s an example of a project that we’ll be starting in a few weeks:

The property is currently an uninhabitable 2 bd/1 bth, 800 sq ft house a few blocks away from the University of Arizona. It was purchased for 70k we are going to be adding just over 1,000 sq ft. In the end, it’ll be a 5 bd/ 3bth, over 1,800 sq ft. Now, what do the numbers look like from a flip and rental perspective?

Plan A - FLIP

Purchase: 70k

+Renovation: 150k

All-In Budget: 220k

Re-Sell Value: 320k

-Closing Costs: 20k

-All-In Budget: 220k

Profit: 80k

Plan B - RENTAL

All-In Budget: 220k

Market Rent: $2500

% Towards Expenses: 30%

Cap Rate/Return: 9.5%

After looking at these numbers, both scenarios make sense as a real estate investor. Obviously, each is entirely different but it’s a way to turn to Plan B. With real estate, Plan A doesn’t always work out so it’s vital to protect yourself. I see time and time again that a flipper only goes in with the expectation to sell it at a certain price point and then they end up losing money after not reading the market correctly. Then, they’re just sitting there with a property that isn’t producing results. You never know when the next crash is going to happen so having that added protection of renting is extremely beneficial.

In essence, protect your assets… if you’re going to take on a flip, always consider worst-case scenarios. If you have multiple exit strategies, then you’re reducing risk. In real estate, you want to be risk-averse. If you can minimize risk, then you’ll be setting yourself up for success. 

Awesome story @Jay Hinrichs!

Thank you for sharing

I recently read a post on BP about a multi-family investor who was building wealth and making great returns investing in multi-family apartment complexes (cannot find the post, but if I do I will share it in the comments). As I scrolled through the comment section I saw multiple posts about how the type of deal described was too good to be true. Reading these comments made me grimace as I thought of Henry Ford's quote, "Whether you think you can or whether you think you can't, you're right.” 

It is very hard for anyone who has not been involved in a "Home Run" deal to understand you can make $100,000, $1,000,000 or more in a real estate deal that takes "No Work". It is too good to be true. That deal does not exist. There is just no way you can make that kind of money... 

On the other hand, professional real estate investors who have been involved in "Home Run" deals realize they do exist. Our eyes have been opened and we realize that if we put ourselves in the right place at the right time those deals appear. The mentality of the investors who know "Home Run" deals exist is completely different compared to the person who has convinced themself "Home Run" deals are impossible. 

Additionally, investors who have experienced "Home Run" deals understand they are very few and far between. They realize the only way to experience them consistently is to perform a substantial amount of work, always putting themselves in a position to capitalize when opportunity presents itself. 

"Home Run" deals are very, very, rare . The difference is the individual who does not think they exist is not looking under every rock and in every crevice to find them, while the investors who know they are out there make sure to leave no stone unturned in their hunt for the next "Home Run". As a result the deals just seem to fall in the lap of the investor and appear too good to be true. What is not seen is the amount of work and the number of deals that fall through before the "Home Run" finally happens. 

So far this week, I have looked at an off market flip that on the surface has the potential to net $50,000-$60,000 in 3-4 months, a 96 unit complex that could easily produce $500,000-$750,000 after capital improvements and stabilization over a 8-9 month timeline and worked on structuring a one acre parking-lot acquisition in the heart of Downtown Tucson that has major development potential. I am not telling you this to brag, the reality is it is very unlikely for any of the deals to work out. The numbers and comps have to check out, the sellers have to sign the LOI, Title has to come back clear, the list goes on and on. The key, is that myself and investors who have had "Home Run" deals are willing to put in the work, follow-up with the prospects, make the extra call, send out one more mailing to have a shot at the next deal, all while the naysayers are claiming "that type of deal is impossible."

I am not saying it is easy, I am in no way saying it does not require a ridiculous amount of work, but I am saying it is possible. And hopefully for the few people that read this post, it helps one or two of them take that extra step in their hunt for the next "Home Run".

Good luck and happy hunting!

Correct, 8% of rent received and $25 per month per unit ($300 per year). I started the management company because I was an investor who got tired of poor property managers.

We do charge tenants a leasing fee of $150 (this is paid to my showing agent) and $100 for lease renewals. 

Hey Peter,

I have a management team in Tucson, AZ. we charge 10% (8% for owners of 4+ properties) plus $25 per month per unit. We do not charge any other fees. No leasing fee to the owner, no vacancy fee, trip charge fee, ect. The $25 per month is our way of being fully transparent with our owners. We run a business and offer a high level of service and need to be profitable, however we found most management companies like to hide misc. fees that they bill to their owners. Our fee structure is designed to be fully transparent with our owners so they know exactly what they are getting. 

Best,

Hey @Troy H.

The key is working with a real estate professional in the area who specializes in multi-family investment properties. Not just an agent that says they work with multi-family buyers but someone who has a full team in place that can go out and get you a deal that meets your criteria (obviously has to be reasonable criteria for your market). Right now, 60-70 percent of the deals we do for investment clients are off market deals presented to agents on my team before they are ever listed. We have a reputation to be able to close good investment deals quick and easy, as a result agents bring us great opportunities that are passed on to our clients. In the past month we have done 4 duplex/triplex, 4 sfh rentals, and a 12 unit complex all off market. If you shoot me a PMI would be happy to give you questions to ask local realtors to make sure you work with someone who knows what they are doing.

You are correct about the FHA PMI requiring refinance of the property, however for most investors I think this is a non-issue. Once you refinance you free of your FHA loan again and could purchase another property. Obviously, you incur the cost of the refinance, but benefit you do free up the FHA loan.

Good look with your future investments. If there is anything I can do to help just let me know.

Best, 

Hello Dominique, 

These are all great questions! First, I would recommend speaking with multiple realtors and find someone that has extensive knowledge in the Tucson investing market. 

It is important to identify your short and long term goals. Are you trying to build a portfolio of rental properties that produce monthly cashflow (rental income) or are you looking to invest in properties that have appreciation potential. 

Additionally, it is very important to understand your options for financing and being in a position to maximize the capital you have available. I know you are not planning on living in the property but there are great options to purchase a triplex or 4-plex with an FHA loan and live in one of the units while renting out the others. The benefit here is that you will have a lower down payment and when done correctly and live for free. My younger brother just purchased his first triplex and I wrote an article about his deal if you would like to read it here:

https://www.biggerpockets.com/forums/223/topics/46...

Hope this helps! 

Feel free to reach out any time to discuss your goals in more detail.

Best,

Today I got to watch my younger brother Tom (24 years old) purchase his first investment property and I couldn't be more proud! I want to share the story and deal terms with BP as I feel it is very similar to the first deal a lot of investors are looking for. Also, I want to brag about my little bro. 

Story: It took Tom about 2 years of being purposeful and saving to get in a position to purchase his first property. He did not want any help from family and decided it was something he wanted to do on his own. After getting the financing in place he started working with an agent on my team and took roughly 12 months before he found a deal that was right for him. He set very specific requirements for his first property and was willing to wait until the perfect deal came up. The property was an off market deal that was presented to my team back in December of 2016. That's right, it took over 7 months to get closed. There were a lot of hurdles and challenges and every step of the way Tom stuck to his plan and used out of the box thinking and creativity to get the deal closed. 

Deal Breakdown: The property is a triplex consisting of two 2 bed 1 bath units and one 1 bed 1 bath unit. The 1 bedroom and one of the 2 bedrooms are rented, $600 and $890 respectively. He is going to move into the vacant unit with a roommate who is going to pay him $400 per month. His total rental income will be $1,890 per month. He purchased the triplex on an FHA loan with 3.5% down for $215,000. His total out of pocket expense with closing cost and down payment was around $8,500. He had the seller pay 2% of purchase price towards closing cost. His monthly payment is around $1,350 per month (principle, interest, taxes, insurance and PMI). With the unit fully occupied he will be living rent free and plans to put the $600 per month he use to pay in rent into a savings account towards purchasing his second property. He already has the timeline drawn out and hopes to purchase property number 2 within the next 24 months.

Hopefully this story inspires someone looking at getting into real estate and concerned about taking the first step. Tom spent a lot of time creating a strategy that allowed him to accomplish his goals and was very purposeful in sticking to that plan. He was presented with numerous properties that did not quite meet his criteria and rather than jumping on a deal that did not work he was patient and willing to wait until he found a property that fit his plan.

To all the new investors out there I wish you the best of luck! If you have any questions or would like more information on this deal please leave a comment or shoot me a pm!

Best, 

Hey @Joshua D Black, 

Tucson has been very good to me from an investment standpoint as well as building a R/E business to service clients. I recently wrote an article on BP about the key indicators in Tucson that point to substantial upside potential in our market and economy. If you want to check it out here is the link: https://www.biggerpockets.com/forums/601/topics/44...

Additionally, you should read Gary Keller's book The Millionaire Real Estate Agent. This book really help lay the foundation for my business model and showed how to monetize a real estate sales team and leverage that into a full service investment fund. 

Feel free to shoot me a PM if you would like to connect and discuss more!

Good luck!

Hey Nikki,

Would love to connect with you and learn about your real estate goals!

@Grant Greene has meeting groups in Tucson and I believe Phoenix as well.